1 phenomenal stock that has tripled in the last 5 years

From August 2019, S&P 500 produced a total yield of 97%. This is much better than the broad index’s historical annualized gain of around 10%.

But there is a phenomenal one retail stock which crushed the S&P 500. Over the past five years, it has risen 202% (as of August 7), a fantastic gain that would have tripled an investor’s capital.

Read on to learn more about this stellar business that you may not already be familiar with.

Boredom is beautiful

The company in question is not a leading technology enterprise. In fact, it might be the furthest thing from the ongoing AI boom. I’m talking about O’Reilly Automotive (ORLY -0.30%)nationwide aftermarket auto parts retailer. Through its network of 6,244 stores (of which 6,152 are in the US), the company sells things like brakes, batteries, motor oil and wiper blades to both do-it-yourself customers and professional auto mechanics.

To be clear, this is a very boring company. But that’s what makes it special. Unlike many tech companies, O’Reilly doesn’t push much in the way of innovation or disruption. And this adds to sustainability because there isn’t a lot of startup capital or entrepreneurial activity trying to disrupt the industry.

O’Reilly’s success stems from some key competitive strengths. Compared to smaller peers such as independent hardware stores or auto parts chains that have far fewer locations, O’Reilly has the brand recognition to stand out. Additionally, with a nationwide store footprint that is supported by numerous distribution centers, this company has unmatched stock availability. Customers can rest assured knowing that O’Reilly probably has the product they need so they can get their car up and running.

Increasing the valuation multiple

Shares of O’Reilly Automotive are up more than 200% over the past five years, thanks in part to impressive financial performance. Between 2018 and 2023, revenue grew at a compound annual rate of 10.7%. In fact, there was no year in which sales growth fell below 6.4%. Even in 2020, when the COVID-19 pandemic rocked the economy, O’Reilly posted a 14.3% gain in revenue.

And in the current year, the business is projected to grow same store sales with 3% (in the middle). This would mark the 32nd consecutive fiscal year in which a gain has been recorded in this key measure. Every retail business dreams of this kind of outstanding track record that indicates consistent performance regardless of macroeconomic conditions.

O’Reilly is extremely profitable. Over the past five years, its gross margin has averaged 52%, while its operating margin has averaged 20%. Unsurprisingly, this has generated a lot of free cash flow, worth about $1.8 billion to $2.1 billion in 2024.

In the past, management has aggressively bought back shares as a way to return capital to investors. Since Q2 2014, a decade ago, tens of billions of dollars have been spent on buybacks. This favorable capital allocation policy helped reduce the number of outstanding shares by 45%. As a result, O’Reilly’s earnings per share (EPS) skyrocketed.

When a business consistently reports robust revenue and EPS growth, the market will naturally take notice. This growing investor optimism also helped boost O’Reilly’s valuation. Five years ago, the share traded at a price-earnings ratio ratio of 22.3. Today, that valuation multiple sits at 28.4. Clearly, the fact that this is a high-quality company is no longer a secret.

Based on its history, it’s probably fair to say that O’Reilly is on the more expensive side. I would expect lower returns going forward. But the business is still worthy of investment.